Cogent Communications (CCOI) NSR/BCG Global Connectivity Leaders Conference - New York summary

Industry trends and technology shifts

• AI is seen as transformational, with potential to change the world as much as the internet did, but current AI outputs are not yet economically profitable due to high input costs, though these are falling rapidly.

• The internet and cloud transitions shifted value to end users and new business models, with legacy telecom providers losing significant market share and value.

• AI's evolution will require new data storage and processing models, with proprietary data becoming a key asset for companies.

• Power consumption by data centers and AI is surging, now approaching 5% of developed world grid capacity, driving data center construction in remote areas.

• Monetization models for AI remain unclear, with likely commoditization and most value accruing to consumers and innovative business models on top of AI.

Connectivity sector outlook

• Increased value in raw internet data will drive more data collection and storage, benefiting core transit businesses.

• Significant fiber investment at the edge is expected, as legacy coax cannot meet new upload demands, and mobile networks face high costs per bit mile.

• AI training facilities will be built in remote locations, requiring new long-haul and mid-haul fiber routes, with much of the build driven by hyperscalers at low returns.

• AI workloads require low-latency, high-capacity Layer one connections (dark fiber, wavelengths), as TCP/IP is not suitable for AI training.

• The proliferation of fiber and transport services will benefit society, but not necessarily guarantee returns for infrastructure builders.

Business performance and strategy

• Stock price decline attributed to complexity of the Sprint acquisition, increased leverage, and temporary negative top-line growth, not operational decline.

• Core business grew 27% over nine quarters post-acquisition, while acquired Sprint business declined 64%; margins have rebounded from 1% to 22%.

• On-net services now comprise 61% of revenues, up from 47% post-acquisition, driving margin improvement and future growth.

• Expectation of 6–8% multi-year top-line growth and margin recovery to 40% through continued focus on on-net services.

• Investors are encouraged to look beyond headline numbers to underlying operational improvements.